The average price of electricity in Estonia last week was €148.80 per megawatt-hour, up by €11.80 per megawatt-hour compared with the previous week.

The cheapest hours were on Saturday, November 12 from 2-5 a.m. and again from 11 p.m. through midnight at €0.09 per megawatt-hour, and the most expensive on Thursday, November 10 from 3-4 p.m. at €423.01 per megawatt-hour, according to Central European Time as reported by Nord Pool.

The entire region saw windy conditions, and wind energy output thus increased, but this increase in output did not fully reach Estonian electricity prices due to maintenance work being done on the submarine power cable connecting Sweden and Lithuania.

The price of natural gas, meanwhile, continued to fall last week due to mild weather, remaining at €110.50 per megawatt-hour, down by €10.10 per megawatt-hour from the previous week.

According to a forecast by the EU's Copernicus Climate Change Service (C3S), temperatures in Europe could remain significantly above average this upcoming winter, potentially providing significant relief to countries feeling the pinch ahead of the heating season.

According to the latest data from Copernicus scientists, temperatures in the coastal regions of the Baltic Sea, the Mediterranean Sea and the North Sea will almost certainly be higher than the historical average. Compared with a month ago, scientists are even more confident in this statement, estimating the probability thereof at 50-60 percent.

Eurasia Group estimates that, based on current weather models, gas reserves will be sufficient even if the beginning of 2023 turns out to be cold. At the same time, however, a lower amount of precipitation is also being forecast, which will negatively affect river transport and hydroelectric power plants as well as the winter ski season.

Gas reserves better filled, but production down

The reduction in consumption has made it possible to fill Europe's natural gas reserves at a higher level than expected during summer, but it has also had a negative economic impact, primarily in the form of a decrease in industrial production.

Last week, international steel producer ArcelorMittal announced that gas consumption in Europe had fallen by 30 percent due to high natural gas prices, leading to an 11.1 percent decrease on quarter in the company's third quarter metal production. The weakening of the European economy is forcing ArcelorMittal to shut down some of its production units, as demand for steel in the region has fallen significantly.

The use of steel in Europe is forecast to fall by 7 percent this year, twice as much as in China, which has been hit by severe COVID-19 related restrictions.

Business activity is slowing down in other energy-intensive fields as well. French energy company Engie SA announced that their largest customers in Europe have reduced their natural gas consumption by 20-30 percent in connection with reductions in production or the use of alternative fuels. Smaller companies' demand has decreased by 10-15 percent as well. For Europe, this means economic growth will essentially slow to a standstill.

In the European Commission's latest forecast, the economic growth rate was lowered from 1.4 to 0.3 percent, with prices in the euro area forecast to grow by an average of 8.5 percent this year and 6.5 percent next year. Germany and Sweden are slated to be hit hardest by the energy crisis, with their economic growth expected to fall into the negative.

Compared to the 2019-2021 period, natural gas consumption in Europe decreased by 25 percent last month, led by Germany, France and Italy as the countries most affected by the end of Russian supplies. At the same time, both Engie and German energy company RWE AG reported strong nine-month profit numbers in light of significantly increased gas and electricity prices.

Not all energy giants are faring well, however. Germany's Uniper SE, for example, reported a loss of €40 billion for the first nine months of 2022. Uniper previously brokered cheap Russian gas to Europe, but when Gazprom's supplies were cut off, they were forced to look for alternative suppliers, whose prices were higher.

Finland, U.K. launch energy savings initiatives

To Estonia's north, transmission system operator (TSO) Fingrid has invited Finnish industry and public institutions to sign up as voluntary limiters of electricity consumption. Under the plan, if an energy shortage were to occur, volunteers' electricity consumption would be limited first, and, should things go well, this reduction in consumption would be enough to cover peak demand.

To avoid winter blackouts, Great Britain's National Grid ESO launched a new measure with which it will pay energy retailers for not consuming electricity. The program is aimed at encouraging customers to shift their electricity consumption from peak hours to periods of lower consumption when production is tight. The ESO hopes this will reduce the burden on producers and the power network.

The French Energy Regulatory Commission (CRE), meanwhile, issued an urgent plea to consumers this week to reduce their energy consumption this coming winter in order to reduce the risk of blackouts. The problem is serious, as by the start of the heating season, only half of the country's nuclear power plants were operation, and the import of Russian gas, meanwhile, has essentially ceased. This has led to record-expensive electricity imports from neighboring countries, and could lead to blackouts during a very cold winter.

France also announced that it will collect €30.9 billion over two years from renewable energy companies that have made record profits due to extremely high prices caused by the energy crisis. This will only cover part of the country's mitigation measures, however, as the French government plans to support households and companies with around €100 billion over this year and next.

Germany, meanwhile, has announced €83.3 billion in planned energy price subsidies.

Sanctions to come already having impact

The next sanctions against Russia will be entering into effect over the months ahead, but their impact is already being felt.

The transport of Russian crude oil by sea will cease on December 5. In addition to Russian-flagged vessels, EU-flagged vessels will also be prohibited from importing Russian crude oil, and vessels involved in the Russian oil trade will not be offered insurance or other services. These sanctions will pose a new challenge for Russia, as if the transport of oil by EU ships is banned, Moscow will not have enough tankers to transport its goods to the few remaining interested parties.

Russia may need more than 200 tankers — over three times as many as in October — with the increased need driven by longer sea routes to new customers. As Russia's largest export terminals are located are located along the Baltic Sea, the use of old vessels by Russia may lead to increased environmental risks for the entire Baltic Sea.

Germany struggling to meet hydrogen targets

At the 2022 United Nations Climate Change Conference (COP27) currently underway in Sharm El Sheikh, Egypt, International Energy Agency (IEA) Executive Director Fatih Birol condemned the OPEC+ community's recent decision to cut oil production by 2 million barrels a day, as this could negatively affect the economies of countries worldwide, particularly developing countries.

Due to the uncertainty of Russian supplies, refineries around the world are buying crude oil from the Middle East for next year. Fewer raw materials from Russia means more competition between regions, which translates into higher prices. Although no sanctions have been imposed on Russian liquefied natural gas (LNG), Japan and South Korea, for example, have stopped buying it at market prices, while China has increased its purchases thereof.

Struggling with the energy crisis, Germany is unlikely to be able to meet its hydrogen production targets by 2030. According to its plan, Germany should be able to produce 10 gigawatts of green hydrogen obtained from renewable energy, but current green hydrogen production only totals 0.95 gigawatts, and currently planned projects could only cover 5.6.

This is a vital issue, as cleanly produced hydrogen is seen as a key to reducing dependence on fossil fuels, decarbonizing industry and transport as well as achieving the country's climate goals. Investments are being held back, however, by the fact that green hydrogen is not precisely defined by the EU, due to which companies are unsure whether possible investments will meet the criteria to be set in the future.

In the middle of the week, Swedish energy company OKG halted the operation of Oskarshamn 3, the country's largest nuclear reactor, due to a turbine failure. While the reactor was up and running again by Thursday, a long-term failure of the 1,400-megawatt reactor could lead to blackouts in Sweden, TSO Svenska Kraftnät (SVK) warned. The Ringhals 4 nuclear reactor, meanwhile, has been offline since fall and will not start operating again until next year.

Finland's TVO has not provided a more precise deadline than the beginning of 2023 for bringing its Olkiluoto 3 nuclear reactor back online following ongoing repairs slated to last through the end of next month due to a turbine failure.

Eesti Energia's Narva power plants were on the market with 590 megawatts last week. Availability was affected primarily by long-planned repairs on Auvere Power Plant, which will last through midweek this week, as well as minor maintenance work in other production units. The weekly average price of CO2 remained steady compared with previous weeks at €75.50 per ton — down by €2.20 per ton from the previous week.

The price of electricity for each hour is formed on the power exchange depending on production capacity and consumer demand for that hour specifically, as well as on transmission limitations between countries.

This market overview was drawn up by Eesti Energia according to the best current knowledge, with provided information based on public data. Eesti Energia's market overview is presented as informative material and not as a promise, proposal or official forecast by Eesti Energia.

Due to rapid changes in electricity market regulation, the market overview or the information contained therein are not final and may not correspond to future situations.

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